After a precipitous 76% decline beginning from highs in February 2020, biotech firm Enzolytics today formed a new low and rallied an impressive 73% throughout the day. How significant is today’s low, and could it have been predicted?
To begin the analysis, consider the hourly candlestick chart in figure 1. It includes a Schiff Pitchfork superimposed which was constructed using the high at A, the low at B and the lower high at C. This pitchfork was confirmed as significant by the historic reversals from the median line, pointed to by the green arrows. If the market respected an overlay in the past, it is very likely to respect it in the future too. This came about this morning, when the share price found support and reversed strongly from the low at the lower 1:1 reaction line.
The pitchfork was not the only warning that a reversal was coming. Consider the chart in figure 2 showing the angular symmetry between the two major downswings since the high at A.
Price swings in financial markets are often connected geometrically through angular symmetry, where the average angle of ascent or descent is the same for multiple swings. In this case, a line is drawn connecting the high at A with the low at B to measure the angle of that decline. The same line is copied exactly and projected downwards from the high at C. It could have been expected throughout the decline from C that the swing would terminate somewhere along that line, meaning the angle of descent would be equal to that of AB. When the low did come this morning, it was in very close proximity to the line projected from C, which when coupled with the support from the pitchfork reaction line, gave a strong signal that a reversal may have been imminent.
Now observe figure 3. Let’s briefly consider the chart in terms of floor trader’s pivot levels, which are horizontal price barriers mathematically determined based on typical price for a set period. If you’re unfamiliar with how pivot points are calculated, don’t worry. All you need to know to follow this analysis is that prices often reverse from the pivot levels.
Figure 3 shows the monthly pivot levels overlaid on our hourly chart in green. This morning’s low came very close to the S1 support level, reversing marginally above it.
All three price barriers together created a confluence of the pitchfork, angular symmetry and pivot points which formed a very powerful support level, which culminated in today’s vigorous advance. Let’s take the analysis one step further by looking at the time axis.
Figure 4 shows that the two swings AB and CD are intricately connected on the time axis too. The first swing, AB, completed in 46 hourly bars. It’s no coincidence that this morning’s low at D also came exactly 46 hourly bars after the high at C. Price swings often display this degree of connectedness, and the 46 bar mark at D acted as a warning sign that a reversal would potentially occur.
Further, figure 5 shows how the low at D was also proportionally related to the swing up from B to C.
The swing from B to C was 27 hourly bars in duration. If you look closely, you’ll notice that the low at D was actually the second low of a double bottom formation. The first low came two bars earlier, 44 bars after C. This 44 hour mark was proportionally significant because it marked a Fibonacci 1.618 time expansion of the swing up from B to C. In other words, 44 is connected to 27 by a ratio of the Golden Mean, or 1.618:1. Coupled with the time equality projection from AB, and there was a strong indication that a reversal could be expected at this time cluster.
Figure 6 shows how all four price and time indicators came together to corroborate the thesis that a reversal was highly likely. When a stock price runs into a confluence zone of this extent the pressure to reverse is almost unavoidable.